Luxury Retail and Smaller Store Footprints on the Rise

Retailers are honing in on the benefits of selling to luxury and online shoppers, and many are decreasing their square footage to maximize profits. Store such as Macy’s, Saks Fifth Avenue, Nordstrom and Home Depot all saw an increase in the 4th quarter of 2011, through sales of luxury items. Other retail companies with smaller footprints, including Apple, Tiffany and Coach, are also seeing higher profits…

Luxury RetailThe luxury shopper is back and spending. Macy’s, Saks Fifth Avenue, Nordstrom and Home Depot all reported sales increases in the 4th quarter and all were focused on higher-income customers.

According to a recent New York Times article on the strong profits of high-end retailers, Saks Fifth Avenue was selling items like fine jewelry, fragrances and men’s accessories with a historically high-margin rate and reduced promotional activity. The average price paid for items at Macy’s and Bloomingdales rose 9% in the quarter and jewelry sales increased.

Nordstrom reported sales increased 12.8% for 2011 while net earnings increased by 11.4%. Home Depot reported same-store sales increases for the 4th quarter of 5.7% and two indicators of high-end momentum rose: transactions greater than $900 increased by 3% while expensive home renovations posted increases in transactions and the amount spent.

Another key driver of consumer spending is the increase in online sales. Online sales for Macys.com and Bloomingdales.com rose 40% from a year ago and the company expected online sales in 2012 to exceed $2 billion. Nordstrom reported that their direct sales had increased by 30% to $917 million for 2011 versus $705 million in 2010. Nordstrom plans to spend about $990 million in capital on its direct business over the next 5 years.

Beyond the benefits of selling to luxury and online shoppers, the most profitable stores in America as reported by RetailSails were those with smaller footprints.

GameStop, with sales per square foot of $1,021, came in at #6. True Religion Apparel, having sales per square foot of $1,096, was in the #5 spot. Lululemon Athletica, a relative new comer in the retail field, held the #4 position with sales per square foot of $1,800, and Coach filled the #3 spot with sales per square foot of $1,824. Rounding off the top two were Tiffany at #2 with $3,085 sales per square foot, and in the #1 position was Apple at $5,647.

The recession, the growth of online shopping and the example of the most profitable stores in America have driven the chains to look at a smaller footprint. Ann Taylor, Gap, Kohls, Sports Authority and even Lowe’s are testing smaller concept stores.

The lower square footage reduces construction and remodeling costs, making it easier to finance. Smaller locations also have less overhead costs and can be staffed with fewer employees. And chains with smaller footprints also have more flexibility in locations such as airports, college campuses and strip centers.